Optimal Spaces in The New York Sun Article

The New York Sun
06/24/2003
Commercial Real Estate

Landlords Give Free Rent, Steak Dinners, Even a BMW To Lure Lessors
By Eric Wolff

Demand for commercial office space has gotten so soft, landlords are practically giving it away.

After the tight rental markets of the go-go nineties, when landlords wouldn’t even return prospective tenants’ phone calls, they now find themselves fighting against a poor economy and a jittery business climate to let out space. To compete they have to offer previously unheard of services: built-to-fit offices (designs included), several months free rent, and features that were previously only the province of luxury office spaces.
Depending who is asked, rents today are 30%-50% lower than their peak in the spring of 2001. Renters looking now for a large space – 40,000 square feet or more – can expect major rent concessions, as much as nine months free. One building on Fifth Avenue even offered the use of a BMW in exchange for renting a two-floor space. Seven of the building’s 17 floors remain available, plus assorted smaller offices.

But even small renters can expect higher standards of office space available to them.

“The quality of the installation today that’s being built is far superior that in prior years” said tenant broker Jonathan Anapol of Prime Manhattan Realty. “Full size interior glass in conference rooms, these are all becoming standard.”

Landlords are practically trying to bribe brokers into showing their space, offering roses, raffles, steak dinners – even extra commissions.

“I’m not sure those gimmicks work,” said Optimal Spaces, Inc. broker Stephen Sunderland. “I’m sure I’ve never cashed one of those checks or bonuses.”

Mr. Sunderland believes the gimmicks are just for landlords that don’t want to lower their base rent to the market price.

“The New York market is so broad and deep that there is always a clearance price,” he said.

One of the big selling points for a recent Vivendi sublease was that it had recently been renovated and was in move-in condition.

“The space that is moving these days is space which is in very good condition,” said Jane Roundell, the Vivendi broker. “Space that needs work sits there and forget it, nobody will look at it.”

Even downtown has begun to rebound, shedding the stigma of the events of September 11th. Vacancies in the area fell slightly during the month of May from 12.25 million square feet to 11.86 million.

“The negative aura, the pollution, the inaccess to transportation is soon fading,” said Mr. Anapol. “Wall Street is becoming more of the same mentality as it had prior to 9/11.”

Not all neighborhoods have been as badly affected. Vacancies in Midtown are only 12.6%, and some neighborhoods like SoHo and TriBeCa had sufficient cache as wealthy and artistic neighborhoods to maintain their appeal.

The best deals can now be found in the Garment District, between Fifth and Ninth Avenues. Where spaces formerly occupied by now-defunct dotcoms are now open, and companies that survived the market have moved up to better spaces. Fifteen-year old zoning laws cramp the market, as they require that only garment factories – long ago driven out of the city by spiraling labor costs – occupy certain buildings.